The Growing Case for Inflation

Why rising prices will help the economy

One of the great achievements of our time has been the conquest of inflation. In the 1970s, it ravaged our savings, raised our taxes, and kept the economy on a roller coaster. So it is a measure of our current economic crisis that the return of inflation might be the best thing that could happen.

Over and over during the postwar era, the Federal Reserve has decided that overcoming inflation was worth suffering a recession. This time, it ought to recognize overcoming a deep recession is worth enduring some inflation.

The existing downturn already looks certain to be the most severe since 1981-82, when unemployment soared to nearly 11 percent. There is even a real risk of a painful deflation. The World Bank fears we are entering the worst period since the Great Depression.

Faced with that looming catastrophe, the federal government has been considering or doing things that were once unthinkable—partly nationalizing banks, buying up debt, bailing out the Big Three automakers, spending hundreds of billions of dollars on infrastructure, and doubling or tripling the budget deficit.

It's possible these measures can restore the economy to health. But only possible. What is certain is that they will produce a government that is bigger, more expensive, more overextended, and more involved in the operations of private businesses. That result, rest assured, will live on after the crisis is over.

So some economists have concluded that expanding the money supply is the worst option except for the others. Kenneth Rogoff of Harvard writes that "a sudden burst of moderate inflation would be extremely helpful." Casey Mulligan of the University of Chicago says, "Inflation will alleviate some economic problems; prolonged deflation will aggravate them."

Gregory Mankiw, who was chairman of the Council of Economic Advisers under President Bush, urges the Federal Reserve to abandon price stability and commit itself to modest inflation. David Henderson of the Hoover Institution says that if the choice is more federal spending or rising prices, he prefers the latter.

It's not hard to see why. Most of our problems stem from the bursting of the housing bubble. That sent home prices plunging, which reduced the value of mortgages and mortgage-backed securities, which caused losses at banks, which forced a cutback in lending, which squelched consumer spending, which brought the economy to a halt. Which started the whole miserable cycle over again.

But if the crisis stems from declining real estate values, why not stop them from declining? A spell of inflation would arrest the slide by pushing up the price of everything. As home prices stabilize, mortgage-backed securities would regain value, banks would get financially stronger, and loan officers would stop hiding in the vault.

Consumer spending would also revive. In the first place, those who want to buy new cars or remodel their kitchens would be able to borrow money to do so. In the second, people whose money is eroding in value would be motivated to spend today rather than tomorrow—the opposite of the incentive when prices are falling, as they are today.

Unlike measures to bail out homeowners, inflation wouldn't spawn a new bubble by stimulating overinvestment in real estate. Home prices might rise, but other prices would rise still more, pulling investment away from the housing sector until the current glut subsides.

The best part of inflation is that it avoids the need for the government to embrace vast spending initiatives and micromanage capitalist enterprises it is not equipped to run. And unlike government programs, inflation doesn't last forever.

One of the historic evils of inflation is that by reducing the value of debt, it rewards borrowers while punishing lenders. But this time, both sides may gain from a rising consumer price index—borrowers because their properties will be worth more than they owe, and lenders because their customers will find it easier to meet their obligations.

Once inflation has performed its useful role, it will have to be tamed. But the Fed has a lot of experience doing that. What it doesn't have is experience bringing the economy out of a deep recession or a depression.

Inflation is not a good thing, any more than powerful, toxic, nausea-inducing chemotherapy drugs are a good thing. But when you have cancer, the one thing scarier than the cure is the disease.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

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  • ||

    When did Chapman turn into a larval Krugman?

    The arguments for Inflation were bullshit when kings first started shaving coins, and they're still bullshit today.

    If it were possible for inflation to improve an economy, Zimbabwe would be the richest country in the world.

    -jcr

  • ||

    I'm trying to remember if I've read anything more asinine than this article in Reason in the last couple of years, and while the "Obama/McCain/Huckabee/Clinton might not be so bad" tripe comes close, this one still takes the cake.

    I'm starting to think that Lew Rockwell's not exaggerating when he rakes Reason over the coals.

    -jcr

  • YoungLiberal||

    I just bought a house, so bring it on!

  • sage||

    If it were possible for inflation to improve an economy, Zimbabwe would be the richest country in the world.

    Oh, come now, the article spoke of "some" inflation. Not inflation on the order of 100,000%.

    However, from TFA:

    Most of our problems stem from the bursting of the housing bubble. That sent home prices plunging, which reduced the value of mortgages and mortgage-backed securities, which caused losses at banks, which forced a cutback in lending, which squelched consumer spending, which brought the economy to a halt.

    Actually, that first sentence should read: Most of our problems stem from the unnaturally low interest rates that were set by the federal reserve to encourage easy credit and spending cycles, which helped to inflate the housing bubble.

  • CrackerBarrel||

    I'm a techie, not an economist, but JCR's comment on inflation makes sense to me.

    It sounds like Chapman expects moderate inflation to be another "rising tide that raises all boats." But I don't get it. The housing bubble raised housing prices *relative* to everything else. I thought that the problem with housing now is having to clear the market of a lot of properties that aren't selling because they're *over-valued*.

    Inflation will raise prices and costs of almost everything, together. Chapman even says so. Maybe lenders will get their money back, but one thing that doesn't go up with inflation is the amount of the monthly payment on a loan. The lender ends up with less real value from the loan than expected.

    BTW, let's call "inflation" by a more realistic name: "currency depreciation." That states more clearly that the reason there are more dollars chasing goods and services is because they're worth less.

    Other things that won't rise with currency depreciation are the values of savings accounts, money market funds, annuity distributions, pensions and social security. I'm a retiree, and Chapman's ideas make me uncomfortable.

    If there's something I'm missing here, I'd welcome the education.

    CrackerBarrel

  • ||

    BTW, let's call "inflation" by a more realistic name: "currency depreciation."

    I think I'm ready to cut to the chase and just call it counterfeiting or fraud.

    -jcr

  • KipEsquire||

    I challenge Chapman to walk into any middle-class kitchen in America and explain to the mom sending her kids off to school how she will be better off paying $5 for a box of corn flakes rather than $4.

    (Corn farmer's kitchens, maybe, but no one else's.)

  • ||

    I think I'm ready to cut to the chase and just call it counterfeiting or fraud.

    Money backed only by the faith and credit of an institution demonstrating it deserves neither could indeed be called a lie.

  • Travis||

    "And unlike government programs, inflation doesn't last forever."

    Yes it does. Unless we go through a period of deflation the inflated dollars will never recover their former worth.

  • SIV||

    What JCR said

  • ||

    Corn farmer's kitchens, maybe, but no one else's.

    No, they'd lose too. The beneficiaries of inflation are those people who first get the newly-created currency to spend. That would be any of the crooks who get to borrow from the Fed (which now includes hedge funds! What next?).

    -jcr

  • ||

    "Most of our problems stem from the bursting of the housing bubble."

    GIGO.

  • ||

    So much suck, so little time.

    Unlike measures to bail out homeowners, inflation wouldn't spawn a new bubble by stimulating overinvestment in real estate. Home prices might rise, but other prices would rise still more, pulling investment away from the housing sector until the current glut subsides.

    With predictive powers like that, you should have retired on your lottery winnings years ago. What does your High Def crystal ball say about the Super bowl?

  • ||

    Wait a minute, I'm confused. Are you talking about manipulating the economy for some greater good? I thought we left that sort of thing to the morons in office...

  • ||

    Why not just reprint some chapters from Keynes's General Theory and call it a day, Chapman?

    "Guys, look, all we have to do is *clandestinely tax savers* and everything will be great!"

  • ||

    Chapman seems to rely on an omniscient brilliance among the likes of bernanke, paulson and others in civil service.

    If the fed still has unconventional tools in its quiver, one has to wonder why noone can define jsut what those tools are--or why noone has ever used them before.

    When we finally realize that fed policymakers are making it up, only then will we face up to what awaits...a long period of debt destruction.

    Why anyone (SC) thinks that the fed can manage anything about the eceonomy is beyond me.

    But I am one of the idiots who thought I was supposed to save my money.

  • ||

    This is absolutely a new low.

    You know what else is great? Big government. Oh, and wars. Wars are great for the economy! Wars and inflation. Doesn't get much better than that.

  • ||

    You know, it's just stunning that this kind of neo-Keynesian bilge still gets a serious audience with the entire credit/inflation-driven fiat money system collapsing around us. What exactly is it going to take for people like Chapman to think Keynes, Bernanke, Krugman, et al were *wrong* on monetary policy?!

  • Nick||

    Actually, Mr. Chapman, some deflation is good for consumers in a tough economy, especially considering the rising unemployment. The longer people's money can go in this economy, the better. That's why stagflation sucks so badly - it makes what is already a financial pinch even more difficult.

    Your argument that people are more likely to spend in an inflated economy is also false - for one, the low housing prices in the current market are actually encouraging people to buy. But in a stagnating economy, people are likely to be more conservative, whether prices are going up or down.

    However, prices going down will always make consumers more likely to spend than prices going up. For one, I've been driving a great deal more and I spent more for gifts this year than I ever have. Because of the deflation combined with my lack of investments, the recession has actually helped me. That's anecdotal evidence, of course, but it makes sense why one would be more likely to spend when prices go down instead of up.

    Furthermore, isn't some deflation necessary for an overheated economy? Prices of housing and gas are dropping because they were way overpriced this time last year.

  • Ken T.||

    An article in reason that basically advocates a weak currency and lots of government intervention in the economy is rather disheartening.

  • ||

    Ditto all the above.

    Most of our problems stem from the bursting of the housing bubble.

    FAIL Most of our problems stem from all segments of the economy being over leveraged (i.e. we've been paying our bills with IOUs). Well that and appointing Chicken Little as Secretary of Treasury. All the TARP, bailouts, loans, stimulus, whatever you call it, are attempts to put keep running up our tab, and therefore doomed to worsen the problem

    Note to whom it may concern on the Reason staff: ENOUGH WITH STEVE CHAPMAN!!!

  • ||

    I, for one, welcome our new cosmotarian inflationist overlords.

    No, wait!

  • Tyler||

    Steve Chapman on the case for inflation? To put it bluntly, I'm not convinced.

    Funniest part was how he expects real estate prices to rise without considering that fact that ALL prices will rise. I would just LOVE for my dollars to be worth less, thank you very much.

  • ||

    I already left a comment, but every time I check Reason for an update I notice this article. I need to say one more thing.

    I don't follow Reason for authoritarian advocacy; if I wanted to subject myself to Making the World a Better Place by Controlling It 101 I'd be a Republican/Democrat. This is not the kind of thing I want to warm up with on a Monday morning.

  • Sam Grove||

    What about later?
    Won't the gov have to keep inflating to prevent a correction?

    Is Chapman looking for a job with the new administration?

  • ||

    Most of our problems stem from the bursting of the housing bubble.

    This is such a kindergarten level of analysis of the situation, it's a wonder the S's aren't turned backwards.

  • ||

    This dovetails nicely with the Obama/Biden plan to expand the "middle class". Once we establish an income level which defines "middleclassness" all we need to do is inflate the currency until everybody is making that much money. Problem solved.

  • ||

    Won't the gov have to keep inflating to prevent a correction?



    Actually, it's pretty hard to find a fiscal year out of the last seventy or so that this was not the case.

  • Nick||

    Chapman's logic: Higher housing prices will encourage more people to buy houses, and thus our economy will recover.

    Our logic: Wow, you're an idiot. Why does Reason continue to run Chapman's articles? (Oh, yeah - because of the attention they get...)

    I have no problem with alternative points of view; for example when Ron Bailey argues that global warming is a significant issue, I'm willing to listen to him. That's because his point of view is well argued. I have no problem with Reason running articles that differ from the libertarian norm - I don't always agree with the libertarian norm myself - but all articles should at least maintain a modicom of logic. I could understand libertarian cases for why Obama or McCain are preferable for libertarians (compared to the other), but I simply can't understand this...

  • ||

    I might be irritated if I paid these guys money.

  • ||

    Damn. After I read the article, I wanted to vent. But you guys covered my points already!

    Let's let inflation raise the price of houses so we can borrow more?? Are you nucking futs? Where to they find these asshats?

  • ||

    Inflation is good for the economy? Oh, cool! C'mon everyone - let's all go out and write a bunch of hot checks and do our bit for the economy. I wonder if Chapman would like to cash my personal note for a couple of million? What! You don't think I'm good for it, Stevie boy? What in hell difference does that make - have a little faith, dude.

  • alan||

    This article will live in infamy. Years from now we will still be referring to it as the Chapman Fallacy.

  • ||

    have a little faith, dude

    Besides - maybe the crooks in Washington will give me a bailout.

  • alan||

    Even if this wasn't out to lunch in the theoretical department, this little snippet from Lew should tell you all you need to know why The Great Inflation II will not succeed:

    Writes a friend:

    Now, in Japan, it is end of the year party time (Bonenkai). I've been drinking with my co-workers as well as some very high up people (CEO's & presidents of huge companies like Sony and TV Tokyo). These guys seem to be getting desperate.

    They told me that they would even accept advertising contracts for $2000 - $3000 dollars! (It used to be that if you weren't talking at least $25,000, you couldn't even get a receptionist to talk to you. One CEO of a major satellite TV channel (owned by one of the biggest companies in Japan) said that, the ways things are now, any money is acceptable. TV Tokyo sales dropped 69.7% up until August this year (I suspect it will be even worse by year's end).

    Ex-CEO guy dropped my jaw when I was mentioning about how the US government was destroying trust in the US economy and that, soon, Chinese and Japanese banks are going to quit buying bonds... He floored me when he said, "We have already stopped" (understand that these guys know the CEO's of the big Japanese banks as those are their financial backers).

  • Kolohe||

    David Henderson of the Hoover Institution says that if the choice is more federal spending or rising prices, he prefers the latter.

    I'm trying to figure out if this is Nixon going to China or Napoleon going to Russia.

  • Egosumabbas||

    *head explodes*

  • Kolohe||

    I'm trying to remember if I've read anything more asinine than this article in Reason in the last couple of years

    The '21 year drinking age rulz!' was worse.

    Once inflation has performed its useful role, it will have to be tamed. But the Fed has a lot of experience doing that.

    And always causing a economic slowdown when they do. The worse the inflation the worse the slowdown.

    Now, I believe in the modern economy that deflation even moderate deflation, is somewhat worse than moderate (i.e. 1-2% what Robert Samuelson called 'zero') inflation. But celebrating inflation is like celebrating chemo - it's a nasty cure for a nastier disease - and may not always work, and possibly could backfire. And Chapman gives his usual facile analysis.

  • Egosumabbas||

    So wrong on so many levels.

    Assuming that inflation rewards debtors by inflating away their debt... creditors would STILL be hesitant to lend because of the negative return on real investment. In other words, interest rates would have to be high relative to the rate of inflation (not close to zero as they are now). Also, the WAGES of the debtors would still have to go up even though the relative value of their debt would go down. If 1 million dollars of debt gets devalued to 100,000 dollars of debt, it won't matter if Joe Six Pack still makes 10 bucks an hour. As was proved in the housing bubble, inflation doesn't inflate the prices of all things equally. In fact, I would argue that any attempt by the government to inflate to save the economy will pump up assets that the government least expects (internet bubble, housing bubble, oil bubble... what next, gold or green tech bubble?)

    This article was beyond asinine.

  • alan||


    Now, I believe in the modern economy that deflation even moderate deflation, is somewhat worse than moderate (i.e. 1-2% what Robert Samuelson called 'zero') inflation. But celebrating inflation is like celebrating chemo - it's a nasty cure for a nastier disease - and may not always work, and possibly could backfire. And Chapman gives his usual facile analysis.


    I understand where you are coming from as I believe we wont see an alternative to fiat monies in our lifetime, and I worry more about what this (conventional Keynesian economic model) does to the traditional positive role of savings in a capitalist economy than I do the monetary policy, but the error with Chapman's thinking is it kicks the problem down the road just a little further for another day, whereas all external factors that made it possible to do just that in the past are now telling us we have to deal with it now.

  • ||

    Suggested new article title:

    Dr. Bernankelove, Or, How I Learned to Stop Worrying and Love Destroying Savers, by Steve Chapman

  • I, Kahn O\'Clast||

    The obvious solution is no solution: let the markets work. But that would likely lead to a serious economic dislocation and a possible depression and deflation period which could prove chaotic.

    If the government needs to try to "solve" this situation -- which it largely created -- then the answer is to tackle the root cause:

    Government should nationalize all the mortgages and restructure all of them at a 4.5% rate with a 20% hair cut to face value and could even throw in a 1-year payment holiday. This would provide immediate payment relief, make debtors less upside down on their mortgages thus making the housing market more flexible.

    As new houses sell, any profit over the value of the mortgage must first go back to paying off that haircut, thus paying back taxpayers. Plus, any profit above that should be taxed as regular income.

    Reforms to accompany this: liquidation of Fannie and Freddie; elimination of tax deduction on mortgage interest; elimination of tax break for selling homes (profit taxed as regular income); future private sector securitizations must be accompanied by a 20% vested stake by issuing banks (on the hook for at least 20% of the security) and issuing banks must also be provider of payment collection service.

    CDS market should be closed: all outstanding contracts to be netted off through clearinghouse with losses realized.

  • ||

    Ever heard of stagflation, "stagnant inflation"? It was the 1970s. Maybe in the USA you did not get it so bad, but it ravaged Europe. Yes, it did exactly what the article suggests, make virtually any mortgage sensible. As long as you could pay the 12% mortgage rate for the first year or two. And as long as you did not mind the high unemployment. Mind you, I can't say if it is better or worse than government bailout (which is printing money - inflationary - anyway). Either way you are bailing out the mistakes and placing the burden on those who were sensible.

    Stagflation is not a fix.

  • ||

  • ||

    You go "JCR"!!!!!! And everyone else who sees through this no pain, lets misprice assetts so we can all be well off. My house has dropped 150K, or half its bubble value. It is a paper loss (still, I wish I had taken those paper profits), but we can't use resources efficiently by pretending we are worth a million, when we really OWE a million.
    Saying a "little" inflation will help you is like saying a little shotgun blast to the head will help your brain cancer.

  • Jon Hege||

    INFLATION = TAXATION

    The Federal Reserve NOT federal. There is NO reserve.

    It is a private corporation with ZERO government oversight.

    The Federal Reserve CAUSED this recession. Why would we expect them to fix it?

    This is one of the worst articles I have ever read on Reason.

    END THE FED NOW

    http://www.endthefed.us

  • ||

    Inflation does not create real wealth, it only redistributes it. It takes savings and fixed wages from the poor, middle class and elderly and drops it in government sponsored accounts.

    It creates no real wealth because the wealth contained in the savings has its own opportunity cost. There is no Koolaid in the world that can save you from this paradox. If the wealth of the new money has a multiplier, is it higher than the multiplier of the opportunity cost of the private savings?

    I have a sneaking suspiscion of the real world answer.

    Finally, this is the very worst article I have ever read on Reason, ever. It sounded like Chapman was giving Krugman a handjob over cocktails...

  • dfd||

    Oh, come now, the article spoke of "some" inflation. Not inflation on the order of 100,000%.

    100,000% would be a major achievement! Actually Zimbabwe's inflation rate is more like 231,000,000%

    For those not inclined to click on the link, there's a picture of a sign in a South Africa restroom that says:

    "TOILET PAPER ONLY TO BE USED IN THIS TOILET
    NO CARDBOARD
    NO CLOTH
    NO ZIM DOLLARS
    NO NEWSPAPER"

  • ||

    Chapman -- was this article a case of trolling in the hope of drawing comments and thus more ad revenues, or an incredibly ironic and deadpan satire of some of the people who post here? If so, well played, sir.

    If you actually believe this bilge, though -- bah.

  • Jasonik||

    Steve Chapman = Kochtoplanner

  • LibertyMark||

    Shameful article for Reason.

    This is what happens when friends let their friends become utilitarians.

    As is typical for utilitarians, it is the underlying assumption that I find most galling: That it's obvious that something must be done, so all that's left is to find the least damaging something.

  • piperTom||

    Another challenge for Chapman: come help me explain to my aging mother why her (CD heavy) life savings need to be robbed...

    Oh, wait! It's for "the greater good." It always is.

  • Egosumabbas||

    @prolefeed:

    Perhaps this was Champan's post-modernist attempt at a modest proposal?

  • ||

    From what I can tell, and I am certainly no economist, it seems that inflation and too-easy money led to an overvaluing of assets. This bubble, when popped, creates the need for a painful, but necessary, economic reset. Chapman seems to be arguing that we float these high asset prices for a period of time and do not let the market correct itself. Yes, deflation is bad, but it its only temporary, since as prices fall, demand naturally rises, even despite the tendency to save now while prices are falling.

    From what I can tell, deflation is certainly bad, but will eventually end. Inflation is also bad, and helps to exacerbate asset bubbles by providing easy money to lending institutions, and like JCR said, the ones who receive the money, ie the ones who deal directly with the fed, are the ones to benefit from inflation. The problems of inflation hurt everyone, and never go away. The problems of deflation hurt the ones who lose their jobs, which is a temporary problem, and eventually will go away. Again, this is if my understanding is correct...

  • Nick||

    LibertyMark,

    I tend to find many of my beliefs intersecting with utilitarianism (especially considering that the original utilitarians were pretty darn classically liberal.) The thing about utilitarianism is, there has to be some basis in fact before you select the solution. Defaulting to "get the government to fix it" is not utilitarianism, in fact, the inefficiency of government to do a good job is more often than not the opposite of a rational utilitarian solution. Everyone argues that their solution is the best and will do the most good for the most people in the long run.

    That can also mean that there is a valid case that doing nothing will do the most good in the long run, considering the high costs of inflation, debt and likely expansion of bureaucracy that comes from government intervention. The existence of the moral hazard alone may be more damaging in the long run than forcing companies to find their own ways out of the hole, by rewarding failure and encouraging mediocrity. Also, the expansion of easy money which Chapman seems to be advocating here IS what got us into this hole in the first place. So I guess the solution is to make more bubbles to burst at some later date?

  • ||

    Double post, I know, but this thought just came to me. Isn't the real goal to just keep the currency stable, neither deflating or inflating? Isn't stability the best way to keep confidence in the market? I feel like there is an interest in preventing deflationary spirals, since the "save now for tomorrow" mentality is unnatural to the market and only caused by monetary policy. On the other hand, we shouldn't try and inflate either, simply stop the deflationary spiral, for similar reasons.

    Why couldn't everything be so simple as the social liberties arguments? This economic stuff is confusing as hell, with a million factors pulling in every direction.

  • ||

    Lots of commenters here rail against Chapman articles being posted on reason, but I support them for two reasons:

    1) They give fodder for the cannons. This kind of nonsense helps all the libertarian ninjas on this site sharpen their swords for when they have real world conversations with people spouting this drivel.

    2) I highly suspect this is sarcasm. Most people only know when you're being sarcastic when you use a sarcastic tone of voice. Real sarcasm is saying something so ludicrous, so outrageous, that no one who heard what you said could ever have possibly thought you were being serious. I feel Chapman's sense of sarcasm may be way off the meter,

    Either that, or he's a blithering moron who just likes the way the word "libertarian" sounds.

  • Lucas||

    Inflationary bubble-building from Reason? You guys are libertarians, right?

    You should recall that FDR's attempts to hold up prices led to 10+ years of severe depression. All an increase in house prices will do is direct more "investments" into housing.

    Which caused the problem to begin with. Inflationary strategy by the Fed led to houses which rose in price by 10% per year, leading private investors to rush to this option.

    Then, "knowing" they'd receive the mortgage equivalent of 10% per year price increases, large investment firms took on more debt (usually to buy more mortgages).

    But all inflationary policies must end. Eventually, margin calls will be made before the theoretical income has accrued, and companies leveraged 32-1 will collapse. All of the consumer spending ultimately based on them will collapse as well.

    This, of course, leads to a drop in prices. First, because consumption (demand) has dropped. Second, because reduced demand leads to reduced investment incentives and rather increases the incentive to sell.

    This drop in consumer prices, after 20 years of heavy Fed-induced inflation and a sudden "adjustment" (you getting canned), is the only thing which helps the consumer and will eventually lead to asset adjustment as well.

    The houses which were overbuilt for a decade need to be cleared out- let their prices drop. Car companies which only existed for the past decade because of cheap financing have overexpanded- let them die, and their assets will be sold to more competent parties.

    "Some inflation from the Fed" will be worse than Obama's $1 trillion spending spree. We will get both, of course.

  • ||

    The obvious solution is no solution: let the markets work. But that would likely lead to a serious economic dislocation and a possible depression and deflation period which could prove chaotic.

    Yes, it might get some bastards in high circles strung up; at the least it might result in Dr. Tar and Professor Feathers putting in an appearance. 'Course, there is always martial law and a recently re-deployed combat division to help enforce it, so not to worry.

    Oh, one thing more - if any of you had any ideas of taking your assets and leaving the country, forget it. Thanks to a nice little amendment tacked onto a bill and quietly signed into law by that good ole boy, Dubya, this last summer, you are free to quit the game, but you must leave your winnings at the door. Tell me the scum didn't see this economic crisis coming months ago.

  • DixieFlatline||

    Americans are really funny. They think they can make the economy healthy by printing money, instead of rolling up their sleeves and going back to work.

    The only reason Americans alone in this world can maintain such stupid ideas, is that they have the world reserve currency, and the inflation is paid for by other countries who trade with the US. Zimbabwe can't do it. Canada can't do it. The UK can't do it.

  • ||

    Oh, wait! It's for "the greater good." It always is.

    Yes, and isn't it odd how the "greater good" is always the greater good of someone else?

  • LibertyMark||

    Nick,

    It is true that a consistent utilitarian and a consistent libertarian will come up the same "solution" fairly often.

    But utilitarians seem to me to be completely unmoored from any concept of a philosophical bedrock upon which to build ideas. They say things like "the most good for the most people". It is impossible to define that. Usually, in an attempt to define it, authority is invoked and government power grows.

    I refuse to support the violation the rule of law or of a single man's rights even if some greater number of people get some "good".

  • ||

    The banner says "Free Minds and Free Markets", but not including advocacy of a free market in money, evidently. The unstated premise of the article is that an armed gang has the right to tell me what medium of exchange I can use, or else.

  • Egosumabbas||

    "Double post, I know, but this thought just came to me. Isn't the real goal to just keep the currency stable, neither deflating or inflating?"

    What Milton Friedman argued is that all you would need is a computer set the interest rates automatically to keep inflation at the same % year after year. Why put a human there who's going to be tempted to open the spigot every time the president starts whining?

  • Justin||

    Steve Chapman, you sir are a sonofabitch.

    Am I off my goddamn rocker, or isn't this the same clown that wrote an article against lowering the drinking age a month or two ago? Why-oh-why is a prohibitionist counterfeiter still published here?

  • ||

    Inflation got us into this mess. Inflation created the bubble by injecting money and cheap credit into the system. This turned growth into a boom as malinvestments were made. It's fun to blame mortgage securities, but they were only the pin that burst the bubble. They were the rude awakening that something was not right.

    Expecting the same inflation to get us out is stupid.

  • ||

    yeah...they'll just press the "moderate inflation" button and everything will be cool. i thought this was supposed to be a free-market publication. what a joke.

  • Anthony Gregory||

    "David Henderson of the Hoover Institution says that if the choice is more federal spending or rising prices, he prefers the latter."

    David Henderson is a friend of mine. But we should all know that we're not about to see the government inflate AND hold the line on spending.

  • ||

    More fascist nonsense from the so-called libertarians at (T)Reason.

  • theCL||

    Apparently Tricky Dick was right all along ... "we're all Keynesians now!"

    Sad commentary indeed. Wait! I know ... why doesn't the Fed just print each and every American a billion-trillion dollars? The economy would thrive, and we'd all be rich! Yea!

    I have no further comment other than to agree with jcr who said of inflation:

    "I think I'm ready to cut to the chase and just call it counterfeiting or fraud."

  • ||

    "But we should all know that we're not about to see the government inflate AND hold the line on spending."

    What better way to get rid of the budget deficit and the national debt!

  • subzero||

    god! reason sucks so much.

    when will they drop the label "libertarian" and stop confusing everyone? jesus fucking christ, keynes was not a libertarian!

  • ||

    "Thanks to a nice little amendment tacked onto a bill and quietly signed into law by that good ole boy, Dubya, this last summer, you are free to quit the game, but you must leave your winnings at the door."

    Link?

  • ||

    I beg you all to take some time and visit these links.

    http://www.mises.org/
    http://www.kitco.com/ind/schoon/dec222008.html
    http://www.lewrockwell.com/

  • ||

    I am glad my subscription to Reason is running out. If I wanted to read about why inflation is good I would just read any number of countless other publications such as the NY Times!

  • Mike Laursen||

    I don't have anything to say that hasn't already been said, but I want to pile on.

    As a person who works hard, pays his mortgage on time, and saves for the future -- all that stuff I was told responsible adults are supposed to do -- I'd like to take this opportunity to say: Fuck you, Chapman!

  • Egosumabbas||

    I think Chapman just gave the Lew Rockwell crew a whole month's worth of rotten tomatoes to throw at Reason.

  • Egosumabbas||

    may I add:

    www.samizdata.net/blog/
    globaleconomicanalysis.blogspot.com/
    themessthatgreenspanmade.blogspot.com/

  • ||

    Silentz,

    I was refering to the Heroes Earning Assistance and Relief Tax Act of 2008 - or rather a provision tacked onto it. Here's one link to one discussion of it, which I found. I'm sure there are plenty more mentions of it on the Web.

  • LibertyMark||

    Even though I called this article shameful, what I find more shameful is the adolescent and petty fight between lewrockwell.com and reason.com.

    There are articles that I would call shameful on lewrockwell.com as well.

    I frequent both sites, and my beef should always be with the individual author and not the group as a whole.

    We are a small band after all. I would think that this article is a chance for both cosmos and paleos (or whatever the fuck ya'll want to call yourselves) to pile on the derision.

  • Bob Kaercher||

    Well, as another contributing writer of this periodical once said, just as there are no atheists in foxholes, neither are there any true libertarians in times of terrorism. So it shouldn't be too surprising that someone else writing for this publication would essentially claim that there are no true free marketeers in times of recession.

    It's that kind of muddle-headed doggerel that prompted me to drop my subscription. I obviously still visit the web site, but that's the only way I can access whatever is decent about this publication without subsidizing garbage like Chapman's.

    Hey, Reasonoids: Extremism in the defense of principles is no vice.

  • Mike Laursen||

    I obviously still visit the web site, but that's the only way I can access whatever is decent about this publication without subsidizing garbage like Chapman's.

    I really like the spectrum of libertarian thought in reason. That they publish a boneheaded article like Chapman's once in a while just proves that they're trying to be very open-minded.

  • ||

    There are articles that I would call shameful on lewrockwell.com as well.

    Which website has articles that make more sense? Because THIS one praising inflation a la Krugman really went too far in its kookiness.

  • LibertyMark||

    open-minded,

    Yes, I actually like it, too. This article an another one by some middle eastern woman who wanted to forcibly close all the muslum schools in the US about made my head explode.

    But, I would almost prefer the occasional head-exploding article than the tiresome purity tests of rockwell's crowd.

  • ||

    As a person who works hard, pays his mortgage on time, and saves for the future -- all that stuff I was told responsible adults are supposed to do -- I'd like to take this opportunity to say: Fvck you, Chapman!

    Yeah, baby! Right on!!

    Oh, and buy gold & silver - which is another way of saying: Fvck you! to these Krugmanites.

  • ||

    But, I would almost prefer the occasional head-exploding article than the tiresome purity tests of rockwell's crowd.

    Strange preferences. I prefer the purity of Lewrockell.com's PRINCIPLES and SOUND economics than the namby-pamby, touchy-feely "economics" of some of Reason's "writters".

  • Bob Kaercher||

    "That they publish a boneheaded article like Chapman's once in a while just proves that they're trying to be very open-minded."

    And "open-mindedness" in pursuit of boneheaded ideas is no virtue.

  • ||

    One of the great achievements of our time has been the conquest of inflation.

    Once an article starts with a dumb statement like the above, I know I am in for some trouble. Chapman does not disappoint in his ignorance or facetiousness, that's for sure. He speaks of "inflation" as if it were an animal or a disease to conquer. Inflation is the continuous increase in the money supply by a central bank, and it is only through a fiat monetary system that inflation can reach the levels we have seen in 18th Century France (with its Assignats), or the nascent USA, or the whole of the XX Century.

    It is the FED that generates inflation, because that is all it can do, and yet, Chapman talks about the FED as if it were like the dutch boy holding the water in the levee. This is either a case of crass hypocrisy or stupendous ignorance of reality.

    Inflation DESTROYS wealth - that is what it does. It does NOT save the country from a recession, it can only PROLONG it. It gives people a false sense of prosperity at the beginning of an inflationary process, but ends up gobbling up savings and capital.

    I don't know if Chapman is a Krugmanite, or a Keynesian, but someone who adopts a pro-free market ideal (as Reason is supposed to espouse) he is NOT.

  • ||

    Are you serious, Reason? This article is all the more reason for me to visit real liberty-minded websites and avoid this statist garbage. If I wanted to read about this idiotic brand of economics, I'd flip on MSNBC.

  • Douglas Gray||

    This is one of the weirdest articles I've ever read in REASON. The economies of virtually every industrialized nation are suffering from excess capacity. As spending dries up, there is a frantic but fruitless effort on the part of Government to get people spending and extending their credit again.

    At least with deflation, some spending continues as there is the psychological response to bargains.

  • ||

    Inflation DESTROYS wealth - that is what it does.

    No, I don't think so. Wars destroy wealth - inflation redistributes it. Other than that nitpick, I agree with you.

  • subzero||

    smartass sob:

    Inflation DESTROYS wealth - that is what it does.

    No, I don't think so. Wars destroy wealth - inflation redistributes it. Other than that nitpick, I agree with you.


    It does destroys wealth, because the wealth is redistributed from more efficient hands (they were able to acquire it!) to less efficient hands. Thus, the people who benefit do not use that wealth as efficiently and there is less wealth that would have been if the redistribution have not taken place. Opportunity cost IS a cost.

  • Kemp||

    Keynesian claptrap infects Reason.

  • ||

    The Fed currently regards inflation as "the great Satan" of economics and will do any and all things to avoid it (Including gov't spending/involvement out the wazoo). To me, Chapman is simply pointing out that moderate inflation (presumably meaning under 10%) may be worth enduring if it means less government involvement.

    Like all things economic, inflation has it's advantages and disadvantages. Inflation or not, deflation or not, government involvement or not, we're in for a long, ugly, uncomfortable ride till this massive deleveraging destroys enough wealth/debt to reach a new steady state level again. No one was really as wealthy as they thought they were in mid-2007. It was all an illusion (pulled off with debt instead of mirrors). The end result of this "crisis" ("correction" is the more appropriate word) will be to bring us all back to reality.

    Interestingly, the people who will come out of this crisis with the least lost will be home renters who have little or no savings but manage to keep their jobs (or move to an equal/better job) "Woo hoo! Gas prices are down, food prices are down, car prices are down, home prices are down, ..."

  • Dylboz||

    The Kotchtopus sellouts on the Reason editorial staff have caught a bad case of Krugmanitis! OH NOZ! When the so-called "libertarians" are on the Fed's monetary sodomy bandwagon, we're all DOOMED!

  • Jasonik||

    NAL, just keep clicking your heels together...

    "Government is not the problem - it is the solution. Government is not the problem - it is the solution. Government is..."

    (Pay no attention to the man behind the curtain.)

  • Bob||

    I think I know why Chapman's here. Back when the Fairness Doctrine still existed -- and nobody was willing to test the water to see if it would still be enforced, which it probably would not have been for several years before it was pronounced dead -- CATO had a 3/week brief radio feature called "Byline". It was said to feature commentaries by "liberal, conservative, and libertarian" commentors, and Chi. Trib. columnist Chapman was among them. This fit CATO's interest in putting out libertarianism with a fuzzy face, for example "Inquiry" magazine, and hoped to slip a syndicated series slanted toward libertarianism past the Fairness Doctrine. So the libertarian "Byline" commentors like the young John Fund were "balanced" by libertarian-leaning "liberals" and libertarian-leaning "conservatives". Julian Bond, who was added late in the game, stuck out among them like a sore thumb, and Roy Childs explained to me that Bond was included because the otherwise overall libertarian slant had become unfortunately evident to many of the radio stns. that picked the program up.

    Steven Chapman was and probably still is, libertarian leaning, in that he's more libertarian than the avg. person. But I guess people, and he himself, might've gotten from his identif'n with "Byline" the impression that he was considerably more libertarian than that.

  • ||

    NAL, just keep clicking your heels together...

    What the hell are you talking about? Did you even read my post? You "libertarians" are apparently the ones who WANT gov't interference in this case. Do you WANT the Fed to do all he can to avoid inflation like the plague, meanwhile digging us in ever deeper?

  • ||

    NAL, there are upsides and downsides to inflation, but in the end, the downsides have it. By the way, us "libertarians" seem pretty decidedly against Chapman's want of the government to save us, somehow, by rearranging money. Inflation and deflation, in the long run, dont really matter. It is only during the time of the inflation or the tme of the deflation that they distort markets and redistribute wealth. Once the wealth has finished being redistributed, we can get back to working normally.

  • Jasonik||

    The Fed inflates. That is all it does. That is its job. It can do nothing else.

    Inflation IS "government involvement."

    There is no 'liberty' in having money silently stolen through inflation whether at 10% or 3%.

    Anyone who says "the people who will come out of this crisis with the least lost" - as if it were acceptable that anyone lose anything from intentionally created government inflation - entirely misses the point of opposing fiat money and the Federal Reserve System as a MAJOR infringement on liberty.

  • ||

    A few weeks ago, I sent LewRockwell an email asking him to be less vitriolic towards potential allies, including Reason. After reading this article, I wish I hadn't.

    I'm extremely disappointed.

  • concerned observer||

    Idiots.

    "Reason" logic:
    1.Steve Chapman argues that moderate inflation can be good for an economy by stimulating spending and investment ( a point argued by most COMPETENT economists).
    2. Zimbabwe has excessive inflation
    3. Zimbabwe is poor

    therefore

    Steve Chapman wants teh U.S. to be like Zimbabwe!

  • concerned observer||

    I swear, you people are the most uninformed yet arrogant assholes I've ever run across.

  • concerned observer||

    I would refer you once again to the writings of John Maynard Keynes for reference. Getting out of your libertarian boxes for a while will do you all good.

  • Jeff||

    I agree that the other options are even more bogus but I'm not sure how wiping out the common American's savings will save an economy. I guess if people are simply focused on the numbers of dollars their house is worth instead of its intrinsic value you may be able to trick people into thinking they're wealthy again.... but isn't that how we got here in the first place? It may have been the housing market that started the recession but the underlying fact that we as a nation produce nothing and buy everything is what's really at fault. If we deflate our currency to the point where we can compete with other producing countries, our creditors will build their businesses here and make us their sweatshop slaves. I say not thanks. Lets let the people who screwed up fail miserably and the rest of us can go on living our productive lives.

    That said, I realize inflation will be an issue soon. I own a home and a lot of gold and silver so bring on the inflation!

  • Jeff||

    Keynesian economics were pretty much debunked, big boy. I'm all for free speech but if we had to burn one book, lets make it one by him.

  • The Wine Commonsewer||

    Chapman is an idiot. There is no case for inflation there is only a case for a stable currency.

    He talks about conquering inflation as if the dollar hadn't lost 2/3 of it's purchasing power since inflation was conquered.

    Frankly, I am not clear why Steve Chapman's syndicated columns keep showing up here. Unless, of course, it is a plot to get all my friends to send me emails saying WTF is wrong with Reason Magazine?

    I believe we each may drink (according to the rules) and I'm getting one. Now.

  • concerned observer||

    @Jeff-When exactly was Keynesian economics debunked? It seems more like free-market fundamentalist libertarian economics has caused more problems.

  • ||

    Oh boy the conspiracy nuts are big here today... i guess you guys think Keynsianism really doesn't make any sense and a big bad group of alien lizard Bilderbergers jsut get together and only allow Keynsians to get jobs at the best newspapers? how else would you explain it that the "genius" economist at the gun-nut-school-of-jew-killing can't get high profile jobs?

    face it, you have to have a brain to understand the new fiat currency system if you want to ride horses and and complain about progress then maybe a commidity based currency would work for you, but if you want to be seen as half intelligent then just accept that counterfeiting is good as long as you don't do it.

  • Mike Laursen||

    And "open-mindedness" in pursuit of boneheaded ideas is no virtue.

    Dunno about that. Anybody who has ever worked in a field that requires coming up with good ideas knows that if you aren't coming up with some bad ideas, too, you're playing it too safe.

  • ||

    This may be the stupidest economic article I've read in some time, and with the neo-Keynsians coming out of the woodwork these days that is really saying something.

    Housing prices are still far too high for people to afford them. Creating another bubble to get the prices back up is just prolonging the problem. Distorting the economy to divert resources into failed and failing business just makes the depression drag on that much longer.

    But my favorite is the one about getting people to take debt to remodel their homes. So now it's a good thing for the economy to spend beyond your means to live in luxury? *THIS* is your solution to our bubble economy?

    Idiot.

  • ||

    > When exactly was Keynesian economics debunked?

    1970's would be about as good an example as you can find. Ten years of inflation and runaway government spending with no growth.

    > libertarian economics has caused more problems.

    So our economy, with 50% of household income consumed by the government, with a freely inflating fiat currency, where industry routinely employs more resource to comply with government regulations than to handle their internal logistics, where you need a freaking license to become a home decorator, is ... wait for it ... a LIBERTARIAN PARADISE!

    Say what you like, but to run a consistently non-free system and conclude upon its failure that freedom doesn't work is just plain dumb.

  • ||

    CrackerBarrel said:

    "Other things that won't rise with currency depreciation are the values of savings accounts, money market funds, annuity distributions, pensions and social security. I'm a retiree, and Chapman's ideas make me uncomfortable."

    CrackerBarrel, I guess you're just part of the healthy tissue that sadly must be sacrificed to allow the chemotherapy to do its job of killing the cancer. So just suck it up like a good boy scout for the good of the country and the bullshit libertarians.

  • geniusiknowit||

    Reason = Cato Lite

  • Richard Stands||

    Does anyone have a link to the section of the U.S. Constitution which grants the federal government the authority to "fix" the economy of the nation? Maybe we should find that section before we entertain debate on the best "fix".

  • ||

    Shut up, Chaps.

  • Bob Kaercher||

    "Anybody who has ever worked in a field that requires coming up with good ideas knows that if you aren't coming up with some bad ideas, too, you're playing it too safe."

    Gosh, Mike, you're right. Let's stop being so damn timid and just copy the monetary policy of the Weimar Republic. Then when inflation's taken such a toll that hardly anybody's got a pot to piss in, we can take some comfort knowing that hey, you gotta try a bad idea or two every once in a while if ya wanna live it up! Am I right?

  • Mike Laursen||

    Am I right?

    Nope. You completely misconstrued what I said.

  • ||

    It is notable that only by rejecting libertarian economics can this article be defended. But to blame libertarian economics for America's ills is like blaming the Iraq debacle on America's non-interventionist foreign policy, or cocaine-related violence on the legalization of cocaine.

  • Reilly||

    Oh, how we have lost our Austrian economic roots. Chapman uses the term inflation to mean a general rise in prices. This contrary to how the term is used by Austrian economists who define inflation as any rise in the amount of money circulating in the economy. Only by his definition have we defeated inflation in the past, not by the Austrian definition. If we believe in Austrian free market economics, then we believe that the Federal Reserve created this crisis by inflating, as defined by the Austrian school, loaning money to banks

  • ||

    laughable.

    chemo destroys malignancies. the govt crimes you advocate are the equivalent of injecting a tumor with growth hormone.

  • ||

    Why the hell is Reason still around? It doesn't offer anything but supply-side nonsense and beltway rhetoric.

  • ||

    Unfortunately, we don't have a choice in whether or not we experience a recession, as a recession is the necessary correction of mal-investment, which, being induced by a central bank's artificial manipulation of the interest rate via monetary inflation, cannot be avoided but only prolonged by additional monetary inflation, as this would only exacerbate the mal-investment.

  • Bob Kaercher||

    Mike "Nope. You completely misconstrued what I said."

    Just pointing out the logical conclusion of advocating flawed ideas in the name of some fuzzy conception of "open-mindedness."

  • Wes Winham||

    I expect better from Reason. If you're going to throw out flamebait articles, at least make them well-researched.

  • ||

    Ho-ho-ho! I'm glad The Onion doesn't have a monopoly on economic satire!

  • ||

    Thanks, UNreason. Buy gold. Abolish the Fed. Clean your weapons. Read Lew Rockwell.

  • Anthony||

    I agree with most of the posters -- complete BS. I did not want to spend when things were good. Inflation will do nothing but begger those that tried to live our means.

  • ||

    After living through the ass rape of the 70s inflationary cycle and watching our standard of living slip all I can say is Steve Chapman makes Ben Bernanke look like a genius.

    You could not be a bigger idiot if you tried.

  • ||

    Mr. Chapman

    May God allow you to be retired and on a fixed income when your wonderful wonkish wished for inflation takes hold.

  • Mitch||

    Just checking in for a quick reminder of why I let my reason subscription expire...

  • ||

    Another excellent analysis by Mr. Chapman! I'm no economist, but he could be quite right in his unconventional approach.

  • Mike Laursen||

    Just pointing out the logical conclusion of advocating flawed ideas in the name of some fuzzy conception of "open-mindedness."

    You're confused about the difference among having a bad idea, advocating a bad idea, and acting on a bad idea. The first is harmless. Open-mindedness is just not being afraid of coming up with a bad idea. Once you get into advocacy and action, you have left the realm of "logical conclusion".

  • ||

    Game over man! Game over! Inflation is good? Linked at Reason? Come on guys, you can find better writers than this buffoon. Selling your soul for a few page views?

    I owe Steve Chapman a small debt of gratitude. The last time I read his column was in a 1995 newspaper. That day marked the last time I bought a newspaper. I decided people with idiotic ideas do not deserve my support.

    Et tu, Reason?

    On the bright side, the majority of the commenters here warm my heart!

  • Billy Beck||

    You people ought to be ashamed of yourselves in publishing this fucking bullshit.

    Matt Welch: turn out the lights, already. This party is definitely over.

  • ||

    As someone who actually *is* an economist and a moderate libertarian, I have to say this was a rather sensibly written article. Reality requires well informed pragmatism with principles in mind, not unthinking, dogmatic devotion to a set of axioms. Consider that we have three options: let the Fed do some inflating to soften the blows of the current recession; get the government involved through fiscal policy to soften the blows of the current recession; or allow hundreds of thousands of individuals to become unemployed, thousands of firms to become bankrupt, lending and credit to completely dry up, and a very long depression to set in. Chapman is merely weighing the pros and cons of these approaches. Sure, you can choose to grit your teeth and bear a harsh depression brought on by inaction chosen now, and maintain true to whatever principles you hold--but is your self-righteousness worth years of lost production and human happiness?

    Good for Reason to have a nicely balanced and intelligent spectrum of views. Keep up the good work, despite what many of these "end the fed" types say.

  • Sheldon Richman||

    In addition to his other deficiencies, Chapman seems unaware of the changes inflation causes in relative prices in earlier versus later stages of production, shifting the structure of production out of alignment with people's true time preferences and savings predilections. That means when the inflation ends, a new depression will set in as the structure has to be realigned with reality. Something for us all to look forward to. Thanks, Steve.

  • Madison Classical Liberal||

    I found out about libertarianism just last year and was so happy to begin subscribing to Reason to read articles from a libertarian view-point. How quickly I have become disappointed however. I just ended my subscription after reading this statist garbage written by Steve Chapman. I want to read a diversity of libertarian opinion, not libertarian and statist opinion.

  • Cure ear infection||

    This has been a very knowledgeable article for me.Baby ear infection I admire the time and effort you’ve squandered for this wonderful post. I am so amused to Stomach gas find people who really care about this topic.

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